The State of the Crypto Industry: An Analysis of Operation Choke Point 2.0 and U.S. Regulation
The crypto industry faced an extended market price drawdown throughout 2022, known as the "crypto winter." Recently, the sector faced a crackdown by U.S. regulators on some prominent entities like Coinbase, Binance, and Kraken, which further shook the industry.
The industry has responded by employing colorful, vivid language to describe what’s been happening, with a notion making the rounds that the U.S. government is out to “un-bank” or “de-platform” the crypto sector.
Operation Choke Point 2.0: A coordinated effort to discourage banks
Castle Island Ventures’ Nic Carter described the government’s efforts as a coordinated, multi-agency operation to discourage banks from dealing with crypto firms. According to Carter, this strategy follows a template used earlier by the Obama and Trump administrations. In 2018, under federal pressure, Bank of America and Citigroup de-platformed firearms companies, and BoA began to report client firearm purchases to the federal government.
Mati Greenspan of Quantum Economics warned that this so-called un-banking could “already be underway,” particularly in light of the recent collapses of crypto-friendly banks like Silvergate, Silicon Valley Bank, and Signature Bank. Greenspan believes that crypto is seen as a “threat” to the U.S. dollar’s dominance in global trade, a significant and long-standing benefit to the U.S.
Will regulation drive crypto-asset innovation offshore?
Attorney Michael Bacina warned that the “regulation by enforcement model” being practiced in the U.S. would simply “drive crypto-asset innovation offshore.” The CEO of a French digital assets data provider told The Wall Street Journal that U.S. agency actions could “shift the center of gravity of crypto assets trading and investments” toward Hong Kong. This shift raises the question: Are these fears justified?
No intentional effort by regulators to de-platform crypto
David Shargel, a partner at the Bracewell law firm, said that he doesn’t think there’s necessarily a concerted or intentional effort by regulators to “de-platform” crypto.
But, the crypto ecosystem has moved from a niche product to the mainstream, and regulators are playing catchup. Regulators also recognize that crypto isn’t going anywhere.
Crypto as a threat to the U.S. dollar’s dominance in global trade
Crypto may have the potential to disrupt global trade flows to some degree, but the dollar is more threatened by other geopolitical factors “such as the U.S.’ own waning influence on the global stage, the rise of China, and Western sanctions on Russia,” according to Zhong Yang Chan, head of research at CoinGecko.
Recently, International Monetary Fund experts said that “crypto assets, including stablecoins, are not yet risks to the global financial system.”
READ MORE: UK Crypto Companies Face Banking Challenges Amid Regulatory Changes
Biden administration’s recent economic report on digital assets
Many in the crypto community were disappointed by the Biden administration’s recent economic report, which devoted 35 of its 507 pages to digital assets.
Dan Reecer, chief growth officer at decentralized finance platform Acala Network, called it “an attack on crypto.” However, there is nothing in the report that describes crypto as threatening U.S. dollar dominance in global trade or about a pressing need to “de-platform” crypto entities.
U.S. regulators face a balancing act
All in all, U.S. regulators face a balancing act. The government has every right to crack down on bad actors, but it shouldn’t kill innovation in the process. The SEC can’t expect to regulate everything in the crypto space – not everything is a financial security.
The government should instead focus on implementing fair and transparent regulations that will encourage growth and innovation in the crypto industry.
Andrey Kunev
Reporter at CoinsPress
Andrey Kunev is a knowledgeable cryptocurrency content creator passionate about the crypto market. With extensive experience in market analysis and investment reporting, Andrey is a valuable asset to the CoinsPress team. As a frequent contributor, he offers insightful and comprehensive coverage of market trends, price fluctuations, and new advancements in cryptocurrency. Whether you're a seasoned investor or just getting started, Andrey's clear and concise writing offers a comprehensive look at the current state of the crypto market and its prospects. Stay up-to-date with CoinsPress's expert analysis and commentary on all things cryptocurrency.
